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Reasons for Concern about Brexit

Apart from a stylized history of the United Kingdom’s evolving relationship with the EU and its precursors, Daniel Hannan’s essay makes three main claims. First, contrary to its image in center-left press, the Brexit vote was not “all about immigration.” Second, good economic news after the referendum has unmasked the economic case against leaving the EU as mere scaremongering. Third, Brexit offers the United Kingdom new opportunities to liberalize its economy and to engage in free trade with the rest of the world.

Each of those claims merits a closer look.

First of all, it is more than a little disingenuous of Hannan and other free-market Leavers to complain that readers of The Economist tend to see Brexit as an expression of nativism. It was free-market Leavers, after all, who deliberately formed a political coalition with the likes of Nigel Farage, and who decided to look away in the face of bigotry and scaremongering over immigration coming not just from Leave.EU but also from Vote Leave headquarters.

More broadly, the preoccupation of the British public with immigration has long made the UK an outlier in Europe. British Social Attitudes surveys have shown consistently overwhelming majorities supporting reduced immigration (56 percent “by a lot,” 21 percent “by a little” in 2013). An index that combines both preference for reduced immigration and the salience of the issue placed the UK ahead of any other EU country, at three times the European average.

A vast majority of those concerned about immigration (73 percent according to a BSA poll) voted to leave the EU. Hannan cites a poll in which immigration comes second on the list of motivating factors for Leave voters. On a different poll, immigration came first with 33 percent, followed by economic considerations (28 percent), and only then by control over British laws (12 percent).

The resonance of immigration in the British debate is not so much a result of an EU-imposed lack of control as of choices of British policymakers: the lack of transitional restrictions after 2004 EU enlargement, tight urban planning restrictions, lax registration requirements, and the character of the National Health Service as a free-for-all.

It is also misleading to cite, as Hannan does, the case of deportation of Abu Hamza’s daughter-in-law as an example of “the lack of control.” In its decision, the ECJ ruled that EU member states “may adopt an expulsion measure provided that it is founded on the personal conduct of that third-country national, which must constitute a genuine, present and sufficiently serious threat.” Furthermore, deciding whether that was the case in this particular matter was “for the national court to determine.”

Second, Hannan is correct in observing that the UK’s economy has not plunged into a recession, as some Remain campaigners predicted. A discussion of the accuracy of claims made by the two campaigns before the referendum would be an interesting one, though likely unflattering to Leavers, too. More importantly, however, no serious economist predicted that the vote itself would send the British economy on a downward spiral. What almosteveryseriouseconomist agrees on, in contrast, is that severing ties with the EU’s Single Market would have adverse and potentially serious consequences for the British economy.

For that reason, it was reassuring to hear Hannan’s earlier assurances that “absolutely no one [was] talking about threatening our place in the Single Market.” Alas, because of the political salience of immigration, the Prime Minister ruled out the UK’s continued membership in the Single Market. Worse yet, respectable voices are now peddling the manifest falsehood that “no deal is better than a bad deal” – a possibility that looms more and more realistic as the centrality of immigration in the UK’s negotiating position becomes evident. Crashing out of the EU with no agreement, or with a trade agreement that provides significantly less market access than Single Market membership, would adversely affect the economy.

Finally, Hannan has a point in saying that “[i]f the [UK has] lower, flatter and simpler taxes, we’ll flourish; if we don’t we won’t. Either way, it’ll be up to us, not the EU. If we have lighter regulation, we’ll succeed; if we don’t, we won’t.” Depending on the outcome of the Brexit negotiations, the UK might very well be able to liberate itself from irksome EU regulations. But it is simply fanciful to imagine that those – and not planning rules or a patchy system of secondary education – constitute a real bottleneck to the UK’s economic growth.

In reality, policies that matter most for economic growth have been always in the hands of the UK government, not the EU. The bloc is home to some of the advanced world’s most lightly regulated product markets (UK and the Netherlands) as well as some of the most protectionist ones (Croatia). Ireland, with a corporation tax rate of 12.5 percent, is an EU member – as is France, with a rate of 33.3 percent. Estonia, a Eurozone member, is the sixth-freest economy in the world on the Heritage Foundation’s Index of Economic Freedom. Greece, also in the Eurozone, ranks 127th, below Russia, Tajikistan, and the Democratic Republic of Congo.

The Leave campaign also promised a flurry of free-trade agreements, to be negotiated before the UK leaves the EU. One wonders how successful the UK has been in exploiting these “most immediate gains,” as Hannan put it, and how conducive the current international environment is to “bolder and better” trade agreements, particularly in light of a U.S. President fixated on bilateral trade deficits.

A more fundamental problem for Leavers is that such a trade agenda involves the same vexing trade-offs between economic integration and domestic control of the rules of the game that led British defenders of national sovereignty to reject the UK’s EU membership. For example, Hannan expresses his desire to tackle non-tariff barriers by applying the principle of mutual recognition.

While mutual recognition remains the canonical libertarian response to the problem of non-tariff barriers, it is fraught with difficulties. Mutual recognition means that foreign producers who follow different rules – such as those U.S. farms that treat poultry with chlorine – are able to compete alongside British ones, held to stricter standards. Libertarians will not find the idea upsetting – and neither do I. Yet the public, including many of those who voted to leave, will find it controversial to say the least – in part because mutual recognition renders domestic regulation ineffective, eroding the ability of government to set rules of the economic game. Even more worryingly for those who profess to care about sovereignty, mutual recognition gives foreign legislative bodies the power the change the regulations guiding the sale of products and services available to the British public.

These are not only abstract questions. In 1998, the EU and the United States concluded a mutual recognition agreement covering telecoms equipment, electrical appliances, medical devices, pharmaceuticals, and several other product sectors. But upholding it the agreement quickly became untenable precisely because of differences in regulatory culture, and views on risks and proper balancing of costs and benefits.

One wishes that Brexiters were right in their cheerful assessments of the opportunities that await their country outside of the EU. However, there are good reasons to continue to worry about the damage that Brexit might do to the British and European economy, free trade, and most importantly to the free-market cause, which has been tarnished by association with the worst kind of bigotry that the UK has seen in its postwar history.

Also from this issue

Lead Essay

Daniel Hannan reviews what Britain stands to gain by leaving the EU, as well as what it should seek to preserve. An economic common market has always been a desirable goal, he argues, but the same cannot be said of a common goverment. Obstacles to free trade tend to be local and concentrated interests, while consumers tend to benefit most, albeit in a dispersed way. Britain’s economy is healthy despite the naysayers, and it will be better able to pursue free trade agreements outside the EU once Brexit is completed.

Response Essays

Dalibor Rohac challenges the claim that Brexit wasn’t about immigration. Leave voters overhwlmingly wanted to restrict immigration, and they responded to anti-immigration messages issued by various groups in the Leave campaign. As a result of the vote, Britain’s place in the Single Market may be in danger, and without it, economists generally agree that the British economy will suffer. The promised free trade agreements that were to arise before Brexit seem not to have materialized. All of these, he says, are sound reasons for concern.

Ryan Bourne sketches the way forward for an independent Britain. He begins by looking at what Leave voters appear to have wanted, namely, a return to parliamentary sovereignty and a rejection of political integration into a supra-state. Leave voters were not anti-trade so much as they were in favor of using local institutions and local rule as the instruments to oversee it. The current political leadership may be less than inspiring, Bourne writes, but Brexit is a long-term proposition, and it tends toward greater freer markets, he believes.

Sam Bowman of the Adam Smith Institute explains why he does not view Brexit with much optimism. The best available models predict that trade will probably suffer on net. This is already reflected in a drop in the value of the British pound. Not only that, but socialism remains popular at home and will now face no EU controls to slow it down. Most Britons are neither xenophobes nor free market liberals, and the political climate is unsettled enough that Britain stands to suffer genuine harms from leaving the EU.

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